Save-A-Lot founder says the key to the extreme value grocery's success is keeping efficiency high and expenses low.
By MARK ALBRIGHT
Published June 28, 2004
From humble beginnings 27 years ago, Save-A-Lot Food Stores Inc. has grown into a dominant force in the emerging field of extreme value retailing. The growing popularity of dollar stores, closeout chains and limited assortment grocers such as Save-A-Lot has made extreme value retailing one of the fastest growing corners of the industry, ranking with Wal-Mart in percentage sales growth each of the past five years.
Bill Moran created Save-A-Lot in St. Louis as a way to keep family-owned independent grocers alive. He still calls the shots as the chief executive, though the company was acquired by Supervalu Inc. several years ago. In 2003, supermarket sales nationally were flat, but at the 1,101 Save-A-Lot stores sales rose by a sharp 9 percent to $11.5-billion. The Times spoke with Moran at a symposium staged by the David F. Miller Center for Retailing Research and Education at the University of Florida.
Q. You claim to price your groceries up to 40 percent below supermarkets. How does the Save-A-Lot formula work?
We concentrate on being incredibly efficient and keeping expenses low. But the biggest savings is we only stock 1,250 of the most popular items found in a grocery store. The typical supermarket stocks 30,000 to 40,000 items, so we only carry the basic items that fill about 90 percent of a customer's shopping cart. We have no deli, no bakery, no lobster tank. You have to bag your own groceries. Q. Who are your customers?
Mostly it's people on a fixed or limited income. The average customer comes from a household with income of $35,000 a year or less. But today that includes 42 percent of the population and it's forecast to keep growing at a rate of 2 percent a year. But you'll see Mercedes in our parking lots too. Some of our best-performing stores are in Naples and Marco Island. We weren't sure about how we would do in Sun City Center, but it's been great. People drive their golf carts right up to the door.
Q. How did Save-A-Lot get off the ground?
I was a marketing vice president for a grocery wholesaler. The big supermarket chains were putting the independent stores we supplied out of business. It was the late 1970s and the economy was down. So I developed this limited assortment formula as a way for them to survive. My bosses didn't go for it, so I got a $200,000 Small Business Administration loan and opened three Save-A-Lot stores myself in 1977. Before long we had 75 independent grocers make the conversion. A lot of them said, "Why not? I'll be broke in a year anyway." Today, independent licensees own 821 of our 1,100 stores and we supply them. The company owns the rest, including all of the couple of dozen we have in the Tampa Bay area.
Q. One of your secrets is the huge selection of obscure store brands you carry. It's more than 400 names such as Tally Ho Crackers and Shaner's Chicken Wings that few people ever heard of. What's that like to manage?
One of the hardest parts is coming up with the names because so many good names are already trademarked. So we name most of our store brands after our employees. You sign permission for us to use your name on a brand when you're hired. Gilmore Gourmet Popcorn is named after our comptroller. Casky's Soups is named after the transportation coordinator in the warehouse.
Q. Didn't the amateurish labels hurt sales for a while?
Yes, we let the labels get too dated. Now we have six artists who do nothing but update labels. And we use shinier lacquer on the paper to make them more appealing. Just a new label, nothing else, on Tally Ho Crackers increased sales 20 percent.
Q. About 20 percent of your products are more familiar brand names. Why?
People want them. But it lends credibility to the store brands. Shoppers see we bargain-price the brand names just as deeply, so it reinforces that these are quality products. And they are quality. We do blind taste tests all the time. Everybody insists Kraft Macaroni and Cheese is the best just because that's all they've eaten. We blind test it and it frequently comes out third or fourth. People have been trained to be brand loyal. I still cannot get my daughter to buy any mayonnaise but Hellman's.
Q. A lot of your stores are in abandoned grocery stores in low-income, urban areas. Is that a hard place to operate?
It can be, but it isn't if you train your people and treat the customer right. Theft in those stores is no more than anywhere else. You make sure there's not much money in the store and that customers feel secure there. But we are welcomed in most neighborhoods because low-income neighborhoods frequently have very limited choices of supermarkets, so they often have been forced to pay a premium for groceries.
Q. Do you intentionally try to make your stores look cheaper as a way of marketing the low price image?
We used to, but times change. The first stores were pretty crude. Crayon signs hanging by a string from the ceiling. Bare concrete floors. We've continually been remodeling them to look clean, bright and fresh. We've been building some new ones, including in St. Petersburg, because it's often cheaper than retrofitting.
Q. Have you ever tried to add general merchandise to the aisles?
Yes, we tried stuff like WD-40, flashlights and batteries. Our core customers are women. They were not interested.
Q. Does that explain why you recently bought a dollar store chain called Deal$? What's the plan?
The big dollar store chains are starting to sell a limited amount of food. Dollar stores are becoming very popular. We see it as a way to broaden our appeal and get new customers. In Florida, we're creating combination stores by adding several aisles of $1 departments filled with general merchandise. Deal$ is very experienced at going right to the source of dollar merchandise in places like China.
Q. Supermarkets are losing market share to Wal-Mart and Target superstores and warehouse clubs. How do you deal with all this heightened price competition?
It's interesting. Our sales have grown at virtually the same pace regardless of the economy. We don't sell the selection others do, so most of our customers shop the other stores as well and cherry pick the best deals from us. But we've been able to peacefully co-exist with Wal-Mart. We have doubled in size since 1996. We plan to double in size again in the next few years.
